With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Teradata Corporation (NYSE:TDC).
Is TDC a good stock to buy? The best stock pickers were in a bullish mood. The number of long hedge fund bets inched up by 2 lately. Teradata Corporation (NYSE:TDC) was in 33 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TDC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to take a look at the latest hedge fund action encompassing Teradata Corporation (NYSE:TDC).
Do Hedge Funds Think TDC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TDC over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Teradata Corporation (NYSE:TDC) was held by Lynrock Lake, which reported holding $91.8 million worth of stock at the end of September. It was followed by Empyrean Capital Partners with a $51 million position. Other investors bullish on the company included Arrowstreet Capital, Two Sigma Advisors, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Lynrock Lake allocated the biggest weight to Teradata Corporation (NYSE:TDC), around 6.83% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 2.29 percent of its 13F equity portfolio to TDC.
As aggregate interest increased, key hedge funds have been driving this bullishness. Empyrean Capital Partners, managed by Michael A. Price and Amos Meron, assembled the largest position in Teradata Corporation (NYSE:TDC). Empyrean Capital Partners had $51 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $17.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners, Michael Gelband’s ExodusPoint Capital, and Ran Pang’s Quantamental Technologies.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Teradata Corporation (NYSE:TDC) but similarly valued. These stocks are Opko Health Inc. (NYSE:OPK), Sprouts Farmers Market Inc (NASDAQ:SFM), J&J Snack Foods Corp. (NASDAQ:JJSF), Spectrum Brands Holdings, Inc. (NYSE:SPB), American Eagle Outfitters Inc. (NYSE:AEO), NorthWestern Corporation (NYSE:NWE), and Bloom Energy Corporation (NYSE:BE). This group of stocks’ market caps resemble TDC’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $343 million in TDC’s case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand Opko Health Inc. (NYSE:OPK) is the least popular one with only 11 bullish hedge fund positions. Teradata Corporation (NYSE:TDC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TDC is 72.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately TDC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TDC were disappointed as the stock returned 1.3% since the end of September (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.